A classification system developed by the EU, the green is designed to enable investment funds to certify that their capital genuinely supports environmentally-friendly projects. In Luxembourg, since 2021, funds that invest in sustainable activities--as defined by the taxonomy--can claim a reduced rate on their subscription tax.
However, as of 20 January 2024, as finance minister (CSV) recently revealed. This result comes as no surprise to , partner and co-chair of Arendt, who is also a member of the board of directors of the Association of Luxembourg Fund Industry.
Guillaume Meyer: Why don’t any funds use the reduced rate?
Michèle Eisenhuth: This is mainly due to the complexity of the criteria for alignment with the European taxonomy. These criteria are not only very restrictive but also very precise, which makes them extremely difficult to implement. At present, the number of companies that have carried out the alignment calculation and made this data available is still limited, forcing fund managers to collect some of the data themselves. This represents a considerable investment in time and resources, often disproportionate to the tax advantage offered.
What proportion of funds are aligned with the European taxonomy?
This proportion remains extremely low. in reference to the Sustainable Finance Disclosure Regulation. Most Luxembourg funds are article 8, meaning that they use and promote the integration of extra-financial criteria into their investment process. Article 9 funds focus on investments that make a positive contribution to the environment or society. According to the latest available statistics, in March 2024, more than 90% of article 8 funds and more than 70% of "article 9" funds had not made any commitment to align with the taxonomy.
What do we know about the situation across Europe?
At European level, a report by an advisory body to the European Commission on sustainable finance shows that the average alignment of European companies that have reported their level of alignment is only 13.11%. These figures are even lower for non-European indices and equities.
Is it really that difficult to establish that a fund is truly green?
Absolutely. European regulations, particularly ESG (environmental, social and governance) standards, are very complex. Without dedicated ESG expertise, it is virtually impossible to determine whether a fund is green according to current criteria. Added to this complexity is the fear of being prosecuted for greenwashing. This is why fewer and fewer funds are choosing to position themselves as article 9.
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So it’s the phenomenon of eco-complexity that concerns you more than greenwashing?
Yes, eco-complexity is a major challenge for funds. It refers to the excessive difficulty and cumbersome procedures required to prove alignment with sustainability objectives. This complexity is holding back the growth of sustainable investment, as players have to navigate a regulatory maze that is constantly changing.
How are competitors like Dublin dealing with these issues?
The situation in Dublin is similar to the one we face here. Imagine: it’s already difficult for a fund to defend a European ESG strategy given the different requirements between national regulators. If that fund is present in the United States, it also has to deal with the differences in approach on either side of the Atlantic. In Europe, we focus more on transparency--which is positive--whereas in the United States, not investing in certain ‘brown’ companies requires a specific warning. This difference in perspective is one of the major challenges of the moment.
Do you think that Europe is at a disadvantage compared to other non-European financial centres when it comes to ESG?
I wouldn’t say specifically disadvantaged, but European regulation is very extensive. We produced hundreds of documents last year detailing the alignment of funds, and with the introduction of new criteria, this process has to be repeated. By 2025, this will mean revising hundreds of documents for some funds, which represents a huge cost. The European approach is defensible and makes sense, but we are suffering from over-regulation. We wanted to move too quickly with regulation, even though the data was not available.
This interview was originally published in French by and has been translated for Delano